Private Credit Outlook
What are your thoughts on the private credit industry from an overall growth and career perspective? I know the market has been growing and firms have been increasingly allocating capital to Private Credit, but do you believe it to be a worthwhile decision to enter the industry from a junior level at a notable/MF firm? Do you believe PC is here to stay?
Definitely here to stay, but I believe it's starting to get oversaturated with the amount of money being raised - this could compress returns as competition becomes more fierce.
That said, hard to see how we don't see material stress/losses at PC funds, especially the LMM funds - there was a lot of deals underwritten in 2020/2021 at 5.5-6.5x+ Leverage... (inclusive of a bunch of bullshit addbacks to EBITDA) no one thought interest rates would come close to being this high. Imagine a $15MM EBITDA business paying S+600 right now... that's 11% paper. Not much room for error - even just a 10-15% decline in EBITDA can really put the business into a tight spot. Sure, Sponsors can cure, if they want to/believe in the asset...
Matt Levine wrote an insightful newsletter yesterday that explained the industry. I would say it is here to stay, especially if banks are regulated to hold higher cash reserves.
Probably the fastest growing asset class. Taking bank market share left and right and offers an execution so strong that it’s preferable to the syndicated market even though it comes at higher pricing.
Another area that’s overlooked is that private credit financing is generally more flexibility in terms of capability - sr secured, 2L, unitranche, pref equity etc are often all offered at one firm so you get a well rounded experience as a junior.
I work in Lev Fin. I’m kicking myself for not getting on the private credit train but hope to still transition as a sr associate or VP.
Do you think this would still apply to someone straight out of undergrad? Trying to see if traditional IB or MFPC would offer more opportunities as a junior
When you have CEOs of all the megafunds coming out to say that 'now is the time for private credit'---that's when you know it's time to gtfo. It was a saturated market years ago and has only ballooned further in the last two years. How can you possibly say with a straight face that you source on a 'differentiated basis' or that it's proprietary?
There's also a more insidious reason for why banks loaded up so heavily on these loans previously: it's because they were and are heavily regulated to begin with. The SEC could very well pivot their focus on PD funds and this is a big concern for not only GPs but their fund counsel. It's here to stay but that bubble will definitely pop sooner or later.
It’s definitely commoditized at this point or rapidly trending that way. But there’s no doubt it’s a more flexible asset class with a much simpler execution solution for borrowers and sponsors than what banks can offer in the syndicated market.
I think eventually the syndicated and private credit worlds will converge, with lenders offering both solutions. Wasn’t it Ares that started a syndicated team recently? Or maybe I’m mis remembering.
But from a junior’s perspective, I think PC is a great place to start especially if you join a good firm that can also play in the pref equity or coinvest land alongside sponsors.
One thing often overlooked though is there is a decent amount of portco monitoring and work in PC unless you’re at a massive shop with a team for that. I actually like and value portco work (even though I don’t even really do it anymore in my current role), but I know some people hate it.
Yep, totally fair. I just think a more measured view of the private credit world is warranted. I know nowadays most recrutiers are either looking to place roles in either infra/real assets or private credit...
Well incentives for underwriting good credit are more aligned as PC. You don’t have capital restraints as banks do and end buyer of this is still the same, MFs permanent capital vehicle
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